It is time to ditch your debt after the federal raised interest rates again, making borrowing money more expensive. The money moves to make before the new year.
SAN ANTONIO — The increase in the federal interest rate means you will likely see a jump in any interest you pay. Reducing debt can save you big in the new year and the long run.
First, get a free copy of your credit report at AnnualCreditReport.com. Doing so will not hurt your credit. Dispute any mistakes or inaccuracies, then use it to make a list of all your debts.
“You’ll want to include information like the creditor, which bank you are banking with for the debt, the interest rate you’re paying on this debt,” said Erika Giovanetti, the loans expert for U.S. News. “That’s going to be really important when it comes to prioritizing the debt.”
Pay off the debt with the highest interest rates first. Those can include credit cards, personal loans and private student loans.
“You’re able to really prioritize those highest interest debts, the ones you’re paying the most for every month,” said Giovanetti. “By putting as much as you can towards those ones, it’s really going to save you the most in the short term and over time.”
Next look at paying off other debt. Go from highest interest rate to lowest. These debts will include auto loans, federal student loans and mortgages.
“Your mortgage is going to have a lower interest rate, a longer repayment term and as long as you can make those monthly payments on your mortgage and you can keep paying down the principal, it’s not really a debt you need to worry about,” Giovanetti said.
Make sure you continue making at least the minimum monthly payment on all loans as you pay off your debt.
“If you want to keep a good credit score, you want to be sure to pay those bills off in time,” said Michele Raneri of credit reporting agency Transunion. “Not to mention that you often get hit with additional fees and you can even get your interest rate increased if you miss payments.”
Know that partial payments also count as late payments. Late payments can stay on and affect your credit score for seven years.
Consider working with a credit counselor at a nonprofit credit counseling agency like the National Foundation for Credit Card Counseling, if you are struggling with debt. There is a small monthly fee for the service, but you’ll get a single monthly payment with a lower interest rate.
“That’s one place to start if you feel like you’re really in over your head with credit card or any sort of debt,” Giovanetti said. “You feel like you just can’t balance your finances.”
Also consider doing a balance transfer from a high-interest rate credit card to a 0% introductory interest rate credit card, if you qualify.
“You’re really able to tackle debt without it accruing any interest and that will help you pay it off much faster and save the most money,” Giovanetti said.
Just be aware most balance transfers have fees of 3% to 5% of the balance being transferred and there could be limits on how much you can transfer.
One action you can take right now to reduce your debt in 2023 is not to take on more debt during the holiday shopping season. Also, consider getting a side hustle. Then, put that money towards paying down your debt.
Source link
